House prices see worst fall in 20 years

House prices in the UK have fallen for the tenth consecutive month in August, reaching double digits for the first time since 1990, according to the Nationwide Building Society.

[ClickPress, Fri Aug 29 2008] House prices in the UK have fallen for the tenth consecutive month in August, reaching double digits for the first time since 1990, according to the Nationwide Building Society.

The average property value has fallen by 10.5% in the last year, with a 10.3% decline since January alone. The rate of the fall has also accelerated, with a 1.9% loss in value in August, following drops of 1.5% and 0.9% in July and June respectively.

The value of the average property in the UK is now £164,654, which is £19,244 cheaper than the average price one year ago.

Economists are predicting worse to come as the national economy is set to contract over the coming year, with low consumer confidence combined with tighter lending criteria continuing to cripple the housing market.

The Liberal Democrat economic spokesman Vince Cable said, “All the signs are that we are at the beginning, and not the end, of a very painful process.” Particularly vulnerable are those people who are facing negative equity, and he warned that the current figure of around 300,000 who now owe more on their mortgage than their property is worth might quadruple if price falls continue over the coming months.

While the tightening of lending criteria and the shortage of mortgages are large factors in the reduction of building activity, house builders see the lack of consumer confidence in the market as the main cause of the drop in demand for new properties, despite a big increase in sales incentives.

Nationwide’s chief economist Fionnuala Earley said that the lack of available mortgages is continuing to depress the market, “but those borrowers choosing a new loan are tending to opt for fixed rate loans, even though they have been more expensive than trackers”. In recent weeks the cost of fixed-rate mortgages has been falling, with a number of lenders cutting their interest rates. This will aid first-time buyers, who would normally benefit from falling house prices but under current conditions are struggling to obtain affordable mortgage deals without a huge deposit.

A slightly less pessimistic picture may be seen in data from estate agents which show a marginal improvement in buyer interest, probably due to price falls and the opportunities for buyers to achieve big discounts.

Nevertheless, the overall outlook remains gloomy, and, as Lawrence Smith of Decision Homebuyers noted, “Even an expected rate cut by the bank is not likely to do much to revive the market as long as consumer confidence remains so low. The market remains stymied at both ends, with potential buyers unable to get affordable mortgages, and potential sellers hanging on to their homes in the hope of achieving a better sale price.”




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